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Politics : Ask Michael Burke -- Ignore unavailable to you. Want to Upgrade?

To: Richard Nehrboss who wrote (59409)	5/15/1999 2:42:00 PM
From: Knighty Tin	Respond to of 132070

Richard, the truth is, it looks worse than it is. First responsibility is, of course, to the geek on the other side of the trade. Then second place is kind of a toss up. The members are liable, but I would think that the co. that said they had sufficient margin from their client would have a lot of 'splainin' to do. <g> In the long run, the SIPC is the guarantor. Of course, you have to convert your options to stock or shorts for this to work out completely. With your shorts, you already have the cash, which is one of many reasons why I prefer credit spreads rather than debit. The SIPC guarantees the cash. And who gives a flying fandango whether the call buyer goes belly up or not? <g> The SIPC also guarantees your long stock. Now, what about the long put? Somebody has to pay for your stock at strike price, and that is where buyer, exchange members and introducing brokers have to step up and say "it's not our fault." <g> I much prefer to leave the stocks out of the transaction completely. For example, a spread conversion, long stock, short an at the money call, long an out of the money put is the same thing as short at the money put, long out of the money put, hold cash. In that case, you obviously have the net credit and the govt. guarantees everything else. In the case of a reverse spread conversion, the short stock, short at the money put, long out of the money call is the same thing as short call, long out of the money call. Once again, the govt. is liable for the whole ball of wax, as long as you keep each account under their limit. Unfortunately, I have to use actual long stock for the spread conversions in my IRA. Hopefully, when I cry that I am a poor retired guy living on a fixed income, the govt. will bail me out if all the brokers go under. <g>